Solar manufacturing in Turkey. Alternatives to the Chinese region of Xinjiang will become more important as the EU moves to ban goods that allegedly have ties to forced labor.
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As the European Union lays the foundation for a ban on products made with forced labor, Europe's solar industry is assessing the potential ramifications, given its sprawling overseas supply chain.
The European Commission announced the proposed ban Sept. 14, building on a transparency and disclosure initiative launched earlier in 2022. The proposal covers all products, whether imported or produced domestically.
The legislation is particularly relevant for Europe's solar industry, whose supply chains are concentrated in China, where the Xinjiang region is a major manufacturing hub. "Serious human rights violations have been committed" in Xinjiang, affecting Uyghurs and other Muslim communities, the United Nations Human Rights Office said in an Aug. 31 assessment.
The Chinese Mission to the EU denies the use of forced labor in China, adding in an email to S&P Global Commodity Insights that Xinjiang has enjoyed "sustained economic development, social harmony and stability, continuous improvement of people's livelihood, unprecedented cultural prosperity and religious harmony" in recent years.
The allegations, however, led the U.S. to introduce the Uyghur Forced Labor Prevention Act in December 2021, banning goods from Xinjiang unless importers can document that their products were not made with forced labor.
China accounts for more than 90% of the EU's solar panel imports, and Europe is now China's largest customer for solar panel exports, given the U.S. trade restrictions on Chinese goods, according to S&P Global Commodity Insights.
Implementing the ban
Europe's proposed ban will put the burden of proof on enforcement authorities, and, to start out with, will be based on civil society and organizations highlighting risks.
If customs offices or other authorities suspect forced labor, they will start investigating specific products, for instance by requesting information and carrying out inspections, both inside and outside the EU. Authorities will remove a product from the single market if sufficient evidence of forced labor is found.
The EU imported over €15 billion worth of panels from China in the first eight months of 2022, Commodity Insights data shows — compared to a little over €9 billion in the whole of 2021.
"As a sector currently dependent on non-EU supplies, the solar industry is a highly conscious about the importance of responsible supply chains," SolarPower Europe, the European trade association representing the solar sector, said in a statement.
The European Commission created scope for industry-led traceability initiatives in its corporate due diligence directive — something the solar sector also hopes to leverage for the certification of human rights standards. SolarPower Europe proposed the Solar Stewardship Initiative, a voluntary program for environmental, social and governance compliance in supply chains involving desk research and factory audits.
The program was launched Oct. 4, and the lobby group hopes it will be comprehensive enough to ensure that most current solar panel imports comply with human rights standards. Developers including electricity producers Vattenfall AB, Engie SA, Enel SpA and Statkraft AS, as well as panel manufacturers such as Trina Solar Co. Ltd. and LONGi Green Energy Technology Co. Ltd., have signed up for the initiative.
Enforcement still unclear
SolarPower Europe acknowledges that achieving full transparency is challenging; the solar value chain spans the mining of polysilicon, manufacturing of wafers and assembly of panels, usually by several different entities.
With its proposed ban, the EU has adopted the stance that any amount of forced labor in a product's supply chain taints the entire product, according to Anne Marie Lacourse, senior market specialist for global trade at Dow Jones Risk & Compliance.
Unlike in the U.S. ban, there is no list of entities, nor a focus on particular products or points within supply chains, Lacourse said on a Sept. 27 webinar.
The implications for EU trade are not yet clear, with the ban still in a draft stage and the ultimate enforcement up to entities such as customs authorities of member states. "We'll see what the standard is by which enforcement mechanisms come into play," Lacourse said.
Once the ban is ratified, there will be a 24-month grace period until it comes into effect.
It will have enough teeth to weed out specific suppliers with well-documented violations, according to Chloe Cranston, who manages the business and human rights unit at Anti-Slavery International, a nongovernmental organization. However, the ban could miss other strands of supply chains that are tainted by forced labor.
Supply chain transparency and disclosure should be much more thorough, Cranston said, to prevent tainted products from slipping through and to give necessary information to authorities enforcing the ban. The due diligence directive laid out by the European Commission earlier this year does not go far enough to achieve this, Cranston added.
"One of the big risks with solar is the risk of bifurcation," Cranston said in an interview, with "clean" supply chains for the U.S. market and tainted ones for the EU.
Unlike in the U.S., customs import data is not publicly available in the EU, making it harder for civil society to play its designated role as a whistleblower, Cranston said.
New capacity growing outside Xinjiang
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For solar, the incentive is now to find alternative sourcing and diversify supply chains away from the much-reported hotspot in China, Cranston said.
"Remediation work is sadly and unfortunately not possible," Cranston said. "The purpose of this [law] is to put pressure on the Chinese government to end the system of abuse."
A long lead time until the ban's implementation will allow supply chains, particularly in the manufacturing of key component polysilicon, to adapt to new expectations, according to Edurne Zoco, executive director of clean energy technology at Commodity Insights.
"Yes, there is still a lot of capacity in Xinjiang, but there is also a doubling of nameplate capacity for polysilicon [happening] outside of Xinjiang in other provinces in China," Zoco said in an interview.
Most of the world's new plants are still in China, but the share of solar-related products produced in the Uyghur region will diminish to such an extent that China will be able to serve its local market with that output, therefore exporting products not made in Xinjiang by 2024 or 2025, the analyst said.
The EU is also building new manufacturing capacity, though the scale is no match for its renewables ambitions. "Even if you build local capacity in Europe, you still need to import wafers," Zoco said. "The problem is at the material level."
Europe will also be able to benefit from lessons learned in the implementation of the U.S. ban, meaning customs authorities will ramp up in an effort to avoid being overwhelmed, and companies will have time to understand what type of paperwork will be required, Zoco said.
Reconfiguring supply chains
SolarPower Europe said it does not know what share of panels imported into the EU are linked to Xinjiang.
However, the amount is likely to shrink if most importers subscribe to the lobby group's stewardship initiative, which will require suppliers to complete third-party audits. "Xinjiang is not accessible for audits currently," Alexia Ruvoletto, SolarPower Europe's senior adviser for trade, said in an interview.
A noncooperation clause in the EU's proposed ban will apply where entities are not complying with requests for information or access, an EU official said via email. "This clause would also apply to situations of state-induced forced labor and will therefore help stop products that have been made with forced labor imposed by states from being brought on the EU market," the official said.
Given that meaningful transparency work in Xinjiang is not possible, importers will use the implementation period of the new ban to cut exposure to risky regions. "We need to reconfigure supply chains," Ruvoletto said, adding that one of the avenues for diversification is the expected EU free trade agreement with India.
As more countries focus on sustainable supply chains, economic pressure on regions with reports or confirmations of abuse will increase, experts said. Under EU proposals, products would be allowed back into the market if forced labor is eradicated.
Until then, Anti-Slavery International's Cranston said policymakers need to support the solar industry in its move away from forced labor. "There shouldn't be a trade-off between the urgency of the energy transition and human rights," Cranston said.
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